- The Washington Times - Friday, April 7, 2000

Buyers of new construction should consider many factors, such as the builder's financial stability and reputation, the size of the planned community and lot location. As in the case of resale buyers, new-home buyers should consider using a buyer's agent, arranging a home inspection and having a lawyer review the purchase contract.

"When looking at new homes, buyers need to look at quality of construction and size of the new development," says Karen Close, a Realtor at C21 New Millennium in McLean. "They need to look at existing homes in other subdivisions of the same builder [to see the builder's work]," she says.

They also need to check to see if the builder is financially stable, she says.

When considering price, John R. White, vice president and division manager at Patriot Homes in Columbia, Md., suggests evaluating the total package being offered by the builder and not just the base price. Certain features and options might be standard with one builder but additional with another builder, making base-price comparisons misleading.

"Conversely, buyers should get what they need and not what the builder wants to sell them," Mr. White says. "Buyers may go to a builder who offers amenities as standard, but the buyer may not want or need them and have to pay anyway."

Consider the financing package, too. Investigate what closing cost assistance is offered and the mortgages available. Because it's a seller's market, Patriot's base prices are going up on a monthly basis, Mr. White says. He suggests making sure the sales contract price is firm and doesn't carry a clause stating that, if the builder's cost rises, so does the price of the home.

Price is affected by location. "The best parcels sell first," Ms. Close says.

As the project begins to close out, less desirable lots are usually left. "They may be a bargain, but may be difficult to resell," she says. In addition, "there may be some lot restrictions [on the style of home that can be built on that lot]."

The best way to get prime lots is to buy during preconstruction when prices may be lower, Ms. Close says. Moreover, early buyers probably will get more attention as the builder will be on site daily.

Getting into a neighborhood early in the construction process may present some problems, however. These homeowners will have to deal with construction, Ms. Close says.

"It's also hard to envision where things are going to be," Ms. Close says, and buyers may not have control over the styles of homes in their immediate vicinity. She suggests researching what the builder permits.

Of course, buying closeouts, the last lots in the construction project, eliminate those concerns. In addition, buyers may get a better price, Ms. Close says. Closeout lots, however, are typically the least desirable, making resale difficult, unless it's a model home, she notes.

Buying a model home may be advantageous for those buyers who can wait a year before moving in. The builder rents it back and may pay the full monthly mortgage payments, maybe more, she says. Model home buyers may get the best lot or best model using that buying strategy, Ms. Close says. Sometimes, buyers can buy the models furnished.

Another way buyers can get a good deal is with "fallout" homes, Ms. Close says.

These are homes that didn't sell because the deal fell through. Buyers may get a lower price, upgrades and a better lot. Regardless of whether it's a closeout or fallout toward the end of the construction, buying late in the project presents the possibility that the builder leaves the area, Ms. Close says. It may be harder to track down the builder one year later for the final walk-through to fix anything still under warranty.

But buying a closeout, model home or fallout has the added benefit that the rest of the neighborhood has been built. A neighborhood exists "and everybody bakes you cookies because you're the new [kid] on the block," Ms. Close says.

Buyers can save money on new construction by limiting change orders and making all construction decisions before the project begins.

"We encourage people to think out their homes and to make changes up front, before construction," says Barry Schwartz, chief operating officer of Renaissance Housing Corp. in Reston.

"Renaissance Housing specializes in changes. We do lots of unique, creative things for the purchaser. At the same time, changing anything in a home is relatively expensive," he says. Late change orders, those that take place after construction is in progress, incur delay charges, Mr. Schwartz says.

"If it's what we call 'rip and tear,' it's almost two-and-a-half to three times the cost of the original work," he says. Buyers must pay for the original work, destruction and new construction.

Another way to get a good deal, Ms. Close believes, is to use a buyer's agent. Real estate agents welcoming buyers at the construction site represent the builder.

Buyers think they will get the house for 3 percent less if they don't use an agent, Ms. Close says. "They [the builders] just make 3 percent more," she points out.

"Buyers do not save 3 percent at Renaissance if they are not represented," Mr. Schwartz says. The company averages the cost of its homes, so they're the same price to those represented and those who are not. Renaissance wants to keep its friends in the real estate community, he says.

"Sometimes agents can play a part in negotiating, perhaps not so much with price, but the amenities that are included in that price [extras, add-ons and upgrades]," Ms. Close says.

Most builders build profit into these customizations. "Oftentimes, a good buyer's representative may be able to obtain those extras at builder's cost," Ms. Close says.

Many builders also require significantly larger earnest money deposits than buyers would typically put down for resales, Ms. Close says. In contrast to resales, where independent escrow accounts are used, the builder holds the deposit. This puts the buyer in a precarious financial position if the builder does not complete the home, Ms. Close says.

A buyer's agent may be able to reduce the amount held and negotiate with the builder to divide the funds so that half goes to the builder and half goes into a regular escrow account, she says.

"The agent [also] may know that the builder's decks are very expensive because it doesn't want to do them [for example]" and can advise buyers to get a contractor to build it, Ms. Close says.

Real estate agents also will likely know the reputation of a builder, she says. A buyer's agent would make sure that there is a builder's warranty and that there is a one-year walk-through.

Tom Kraeutler, spokesman for the American Society of Home Inspectors, advises consumers buying new homes to hire an inspector.

"The general presumption of new-home buyers is that the house that's being built … has already been inspected by construction code officials the ones that work for the town," Mr. Kraeutler says.

That assumption has two flaws, he says.

First, the code inspector doesn't have time to pore over every detail of that house. Second, "just because it was built 'up to code' does not necessarily mean it was done well. It's a passing grade, but it may not be an A-plus," Mr. Kraeutler says. "Because of that, you might want to think about hiring your own private sector inspector or equivalent [such as an architect or engineer]."

Having a private inspector doesn't have to mean an adversarial relationship, Mr. Kraeutler says, because "some builders like an extra pair of eyes."

"A good time for the first inspection is when the framing is complete and the rough mechanical systems have been installed," Mr. Kraeutler says. At that point, all the roughs are in, he says.

It's also important to make sure that the trades people haven't cut out anything. At this point, the Sheetrock isn't in place, so the inspector can see what's in the walls, he says.

Mr. Kraeutler suggests getting a second inspection, a preclosing walk-through, when the project is completed.

"[Both here and] in many parts of the country, you have warranties that are issued upon completion," he says.

But if a buyer closes on the house and that afternoon finds a big chip in the sink, it will not be covered under most warranties, he says. Cosmetic defects aren't covered unless reported before closing.

The other problem is that buyers don't get coverage for things that are incomplete, so if the front door is missing, the omission is not covered in most plans, Mr. Kraeutler says. (If the door is delivered and installed, it is covered to the extent it would have been covered.)

The inspector records anything that's defective or missing and preserves the coverage, he says.

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